New UK mortgage rules to impact overseas buyers
As of last weekend, obtaining a UK mortgage just got harder, if you are an expatriate or international property buyer. The mortgage market review (MMR), a new piece of financial guidance to mortgage lenders, is designed to stop banks and building societies making loans that are either irresponsible or which risk defaulting, when interest rates finally start to rise.
MMR will make applying for an international mortgage more time consuming and more complex and prospective buyers will find the amount of information they now have to prepare has risen considerably. However, it is only likely to really impact those buyers who are at the margin of what they can really afford, so the solution for that small group will be to trade down slightly.
The main changes relate to the way finance will be approved or not – gone are the simple salary multipliers and in their place now is a calculation of affordability. So expect to be asked how much you spend on the horses, how often you go out and how often you have your hair done, as the banks try to calculate realistic income and expenditure statements.
Tim Harvey of international mortgage brokers Offshoreonline.org does not think it will make a huge difference to the market. “Offshore lenders have in practice been applying an affordability based model for at least a year now and it is certainly not unusual to stress test loans to 7%. That is not to say we expect to see mortgage rates at this level in the near future, though. As Base Rates do rise, lenders will have to look at their margins which in some cases are nearly 4.90% – compare that to the positioning in 2006-2007 when lenders would expect to make 1%-15% over UK Base at the most, so as you can see, there is plenty of room for competition to re-enter the market.”
Top tips for prospective buyers are all common sense. Make sure your current account is in order and showing at least three months in credit, before you start an application – lenders still do not like to see evidence of accounts being overdrawn, as it suggest expenditure is outstripping income. Make sure too that you have up to date statements for all your other accounts and as an expatriate, don’t forget that subsidised accommodation and paid flights home can all be counted towards income.
Expatriate buyers should budget on a deposit of 25% for buy to let deals. Banks are often reluctant to lend on ex local authority and low value properties, but expatriate and international UK mortgages are now easier to come by than they have been at any time in the last five years.